For users with Windows Server applications, Azure replaces both the hardware and platform software. Therefore, Azure displaces software licensing charges, as well as maintenance costs. While Azure is generally more expensive than AWS, these benefits can make it more cost-efficient.

PaaS separates Azure from the pack

Azure's best feature and clearest differentiator is PaaS. In addition to limiting cloud costs, PaaS facilitates hybrid cloud operation. To do this, PaaS provides a complete cloud software and hardware platform for applications compatible with Microsoft's on-premises tools. Azure offers cloud-friendly implementations of popular server APIs for services such as SharePoint. And because Microsoft controls the data center version of the same APIs, it can build resilience and hybridization into the cloud and data center.

Microsoft's focus on hybridization is timely, especially since hybrid cloud is largely responsible for current cloud market growth. The first generation of cloud focused on hosted server consolidation and infrastructure as a service (IaaS). But the second generation focuses on hybridization, starting with traditional cloud bursting and failover and, now, dividing applications between public cloud and the data center, including private cloud.

Azure Batch suggests Microsoft wants to exploit its PaaS roots to drive the third generation of cloud and hybridization -- applications that run only in the cloud. Unlike traditional grid computing apps, Batch distributes applications across many cores and systems without needing to rewrite code. Because future cloud-specific applications will likely resemble grid computing apps, Microsoft's strategy could give Azure a leg up as applications evolve to the cloud.

PaaS' benefits go beyond grid computing compliance. Microsoft controls middleware in Azure and Windows Server, ensuring on-premises programs can take full advantage of the cloud. It introduces new platform services that can run in the cloud, on-premises or both. As a result, developers are more likely to utilize these features. This means middleware will automatically optimize more Microsoft-based apps for the cloud -- and that's a powerful benefit.

Azure's PaaS isn't perfect

While PaaS is one of Azure's top strengths, it also presents a challenge. Microsoft supports IaaS-like services and other guest operating systems, but Azure's costs and benefits are less favorable for non-Microsoft applications. As a result, Microsoft Azure may be confined to Microsoft-specific applications, which creates a challenge for users who want a cloud strategy that works for any application or platform.

Microsoft Azure's second challenge with PaaS is limited support in the competitive cloud market. While IaaS runs anything, PaaS represents a specific OS or middleware platform, and Microsoft is the only Azure-like services provider. Buyers may feel locked-in, and developers may feel Azure forces all their eggs in one basket.

Microsoft is the first pure PaaS player and the leader in the traditional PaaS model. But competitors are moving in from both sides. AWS, the IaaS leader, is augmenting Elastic Compute Cloud (EC2) with AWS service features, which creates a PaaS-like development framework. Salesforce.com is expanding its SaaS foundation into PaaS with social and collaborative tools presented as APIs. While neither of these moves threatens Microsoft's core Azure PaaS service, both compete on the borders that Microsoft will have to pass in order to expand its opportunity.

Microsoft's biggest cloud asset is its enterprise footprint. While not every company runs everything on Windows Server, nearly all run something. And that offers Microsoft an unparalleled opportunity. If Microsoft can convincingly present Azure's benefits and address opportunities adjacent to classic Windows Server applications, it can secure a strong role for Azure in the future of cloud.

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